Correlation Between Plains All and Alerian MLP
Can any of the company-specific risk be diversified away by investing in both Plains All and Alerian MLP at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Plains All and Alerian MLP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Plains All American and Alerian MLP ETF, you can compare the effects of market volatilities on Plains All and Alerian MLP and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Plains All with a short position of Alerian MLP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Plains All and Alerian MLP.
Diversification Opportunities for Plains All and Alerian MLP
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Plains and Alerian is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Plains All American and Alerian MLP ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alerian MLP ETF and Plains All is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Plains All American are associated (or correlated) with Alerian MLP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alerian MLP ETF has no effect on the direction of Plains All i.e., Plains All and Alerian MLP go up and down completely randomly.
Pair Corralation between Plains All and Alerian MLP
Considering the 90-day investment horizon Plains All is expected to generate 1.06 times less return on investment than Alerian MLP. In addition to that, Plains All is 1.98 times more volatile than Alerian MLP ETF. It trades about 0.22 of its total potential returns per unit of risk. Alerian MLP ETF is currently generating about 0.46 per unit of volatility. If you would invest 4,572 in Alerian MLP ETF on August 28, 2024 and sell it today you would earn a total of 344.00 from holding Alerian MLP ETF or generate 7.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Plains All American vs. Alerian MLP ETF
Performance |
| Timeline |
| Plains All American |
| Alerian MLP ETF |
Plains All and Alerian MLP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Plains All and Alerian MLP
The main advantage of trading using opposite Plains All and Alerian MLP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Plains All position performs unexpectedly, Alerian MLP can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Alerian MLP will offset losses from the drop in Alerian MLP's long position.| Plains All vs. Genesis Energy LP | Plains All vs. Western Midstream Partners | Plains All vs. Hess Midstream Partners | Plains All vs. Enterprise Products Partners |
| Alerian MLP vs. iShares Preferred and | Alerian MLP vs. Global X MLP | Alerian MLP vs. Plains All American |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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